Energy poverty and premature deindustrialization: evidence from middle-income countries

Energy poverty persists as a critical barrier to industrial growth in middle-income countries, yet its role in driving premature deindustrialization has been largely overlooked. Closing gaps in access to clean cooking fuels, reliable electricity, and adequate per capita energy consumption could alter manufacturing trajectories before economies reach advanced income levels. A panel of 89 middle-income countries from 2000 to 2022 was analyzed using the Pooled Ordinary Least Squares (POLS), Fixed Effects (FE), Random Effects (RE), and Instrumental Variables-Generalized Method of Moments (IV-GMM) estimators. Robustness checks through Driscoll-Kray, Probit, and Logit models are also performed. The results show that a 1% increase in access to clean cooking fuels (EP1) reduces the probability of premature deindustrialization by about 0.54 points (p < 0.01). Improvements in electricity access (EP2) lower that risk by approximately 0.15 points (p < 0.01). These effects remain robust after controlling for official development assistance, remittances, rule of law, labor participation, trade openness, resource rents, Foreign Direct Investments (FDI), women’s parliamentary representation, and urbanization, and hold across regions and model specifications. Eradicating energy poverty is essential to sustaining manufacturing’s share of output and employment before reaching high-income status.